Major Carriers Shun Broadband Stimulus

Major Carriers Shun Broadband Stimulus

Funds Would Come With Tighter Rules

by

Cecilia Kang

The Obama administration made a national priority of spreading
high-speed Internet access to every American home and offered stimulus
money to help companies pay for it, but the biggest network operators
are staying away from the program.

As the Aug. 20 deadline nears to apply for $4.7 billion in broadband
grants, AT&T, Verizon and Comcast are unlikely to go for the
stimulus money, sources close to the companies said.

Their reasons are varied. All three say they are flush with cash,
enough to upgrade and expand their broadband networks on their own.
Some say taking money could draw unwanted scrutiny of business
practices and compensation, as seen with automakers and banks that have
taken government bailouts. And privately, some companies are griping
about conditions attached to the money, including a net-neutrality rule
that they say would prevent them from managing traffic on their
networks in the way they want.

"We are concerned that some new mandates seem to go well beyond
current laws and [Federal Communications Commission] rules, and may
lead to the kind of continuing uncertainty and delay that is
antithetical to the president's primary goals of economic stimulus and
job creation," said Walter B. McCormick Jr., president of USTelecom, a
trade group that represents telecoms including AT&T and Verizon.

Yet those firms might be the best positioned to achieve the goal of
spreading Internet access to underserved areas, some experts say.

"If you want to get broadband out, you have to do it with [those]
who brought you to the dance in the first place, and in this case it is
the incumbent cable and telephone carriers who have 85 percent of lines
in the country," said Robert Atkinson, president of the Information
Technology and Innovation Foundation, a Washington tech policy think
tank. "This is not basket weaving. This is really complex and intensive
technical stuff that takes a fair amount of sophistication and scale to
be able to do right and to continue to upgrade."

Obama has pushed for universal access to broadband since his
presidential campaign, saying it would underpin the country's economic
future. The stimulus funds target homes and businesses in the
hinterlands that have largely been overlooked by broadband providers
because of the hefty costs to lay down fiber-optic and other broadband
pipes to small communities.

At the same time, the government has promised more scrutiny of
industry practices that seem to limit consumer access to services, such
as Comcast blocking the peer-to-peer file sharing service BitTorrent in
2007 and Apple's recent decision to block Google's voice service and the free Internet calling service Skype on the iPhone.

Those efforts have alarmed the major carriers. Specifically, some of
the biggest firms fear that a clause in the stimulus plan that says
recipients of the grants cannot "favor any lawful Internet applications
and content over others" -- the concept known as net neutrality --
could lead to more rules down the road.

This condition goes beyond guidelines at the FCC that have been
criticized by consumer advocacy groups as too vague. Carriers have
pushed to keep current rules in place and see the condition on the
stimulus grants as a potential precursor for additional rules at the
FCC on how carriers can manage content over the Web.

The companies paint dire scenarios where new rules would lead to
networks getting clogged with spam and too much video content, slowing
down service for all users.

"It's not cost-effective for the big network operators to play in
rural [markets] in the first place, and if they take federal money that
comes with all these strings attached to it, they are opening
themselves up to being regulated even further," said Roger Entner, head
of communications research for Nielsen IAG.

McCormick said net-neutrality conditions on the grants are fuzzy and
may give network operators pause before investing in long and expensive
projects that could end up in a tangle of technical and legal hang-ups
over how the firms oversee their networks.

Verizon said it decided not to apply before conditions were
announced. Comcast, which mainly serves urban and suburban areas, said
it would also abstain. AT&T said that it likely would not apply but
that it is open to partnership with state and local governments who win
the grants.

Corporate officials have also said it would look bad for a company
like AT&T or Comcast to come to the government with hat in hand
when they are among the few companies in the economy flush with
billions of dollars in cash reserves.

One official at a large network operator said on the condition of
anonymity that once taken, government funds incite a "mob mentality"
that could preclude sponsoring golf tournaments or giving executives
bonuses, for fear of political backlash.

Some public advocates and analysts say the carriers never had a compelling reason to seek the grants.

"They weren't going to apply," said Ben Scott, head of policy at
public advocacy group Free Press. "They are using this as an
opportunity to grandstand against net neutrality."

Rebecca Arbogast, head of tech-policy research at Stifel Nicolaus,
notes that the biggest carriers would be less inclined to deploy
networks in rural areas because there is not enough demand to justify
the ongoing financial investments. She said the companies should have
expected stronger net-neutrality conditions because it was mandated by
Congress in the stimulus act.

"With a few exceptions, the net-neutrality provisions were not a
great departure from what I think was already out there and is
consistent with the path that most recognize we were already headed
down," Arbogast said.

The Commerce and Agriculture departments, which are handing out a
total of $7.2 billion in broadband stimulus grants through 2011, say
the plan to bring high-speed Internet to the hinterlands and urban poor
can be accomplished without the big carriers. Companies like wireless
broadband provider Clearwire and small cable and telecom operators may
introduce more competition into the industry by using the funds to
build networks that could compete with AT&T, Verizon and Comcast,
analysts and government officials say.

"I think if the big carriers want to participate and play by the
rules, great. If not, I'm not that concerned," said Mark Seifert, a
senior adviser for the National Telecommunications and Information
Administration, which is overseeing grants for the Commerce Department.

Seifert said the rules for broadband grants were not written to
favor any size or kind of network operator. Further, the $7.2 billion
is not intended to complete Obama's goal of spreading broadband to
every home; rather, it is a "down payment" on a larger plan being
crafted by the FCC, he said.

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